Whitehall poised to cut pension charges

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The Independent Online
THE GOVERNMENT is today expected to set out its plan to slash charges on private pensions when it unveils the final blueprint for its flagship welfare reform, stakeholder pensions.

Alistair Darling, Secretary of State for Social Security, will set out the plans in the form of a "CAT-mark" - a government stamp of approval for stakeholder pensions that meet its requirements for low cost, easy access and flexible terms.

Financial services companies expect the Department of Social Security to require insurers to charge no more than 1.5 per cent of the value of a pension fund in any one year. Currently, pension charges can include confusing charges including bid/offer spreads, initial charges and hidden penalties.

The stakeholder pension blueprint is the culmination of nearly three years of planning. The Government at first insisted the new plan - supposed to encourage those on low incomes to save for retirement - would break from the model of the much-criticised personal pension. But the DSS recently conceded that insurers would be able to offer stakeholder pensions in the form already used for group personal pensions - individual vehicles grouped together by one employer.

The Treasury may also join in plans to reform the pension system amid a crisis caused by rock-bottom annuity rates. The same pension savings buy an annuity income much lower than in previous years, owing to falling long-term interest rates.

The pensions industry is calling for Whitehall to offer savers an alternative to buying an annuity. Current laws insist that pension savers buy an annuity by the age of 75, forcing many to swap capital for an annuity at a time when returns are poor.

Donna Bradshaw, of independent financial advisers Fiona Price & Partners, said: "Annuities are not good value ... People are getting a poor return."